BEIJING, July 26 — Shares in Chinese tutoring firms tumbled today after Beijing imposed new rules on companies to register as non-profit organisations, effectively wiping out business models in the multibillion-dollar sector and hammering their owners’ fortunes.
Officials announced Saturday they will stop approving new after-school education institutions, while all existing ones must now register as non-profits, saying the industry has been “hijacked by capital”.
The private education sector was worth US$260 billion (RM1 trillion) in 2018 according to consultancy and research firm L.E.K. Consulting, driven by China’s hyper-competitive kindergarten-to-university education system in oversubscribed cities.
While the move — which also bans teaching on weekends and during holidays — is aimed at reducing pressure on children, parents and teachers, it is a gut punch to the tutoring industry, which was reflected in trading today.
Shares in New Oriental Education & Technology Group Inc. plunged 47 per cent in Hong Kong, deepening Friday’s record 41 per cent fall that came as speculation about a crackdown spread on social media.
Its US-traded shares shed 54 per cent.
The company said in a statement yesterday that it expected the new measures “to have a material adverse impact on its after-school tutoring services related to academic subjects in China’s compulsory education system”.
Another firm, Koolearn Technology Holding Ltd closed 33 per cent down, while China Maple Leaf Educational Systems fell 10 per cent.
Businessmen lost their billionaire statuses as shares were hammered.
Larry Chen, the founder of Gaotu Techedu Inc, lost his status as a billionaire and is now worth around US$336 million after his firm shed about two-thirds of its value in New York. The former teacher has lost about US$15 billion since January, having also been caught up in the collapse of Archegos Capital Management.
New Oriental CEO Yu Minhong also lost his billionaire status, shedding US$685 million to leave him with US$579 million.
And Zhang Bangxin’s fortune fell US$2.5 billion to US$1.4 billion, Bloomberg News reported, after his New York-listed TAL Education Group fell 71 per cent.
Analysts say the fallout from the new rules could jeopardise listings.
“It’s unclear what level of restructuring the companies should undergo with a new regime and, in our view, this makes these stocks virtually uninvestable,” said JPMorgan Chase & Co. analysts in a note dated Saturday.
The crackdown resembles authorities’ moves to rein in China’s tech giants, taking aim at monopolistic behaviour and imposing huge fines against firms.
On Saturday, the market regulator said Tencent had violated antitrust laws, compelling it to relinquish its exclusive music label rights and prompting the company’s shares to fall more than seven per cent today.
China’s for-profit tutoring sector has faced heightened scrutiny in recent years, with excessive workloads and prohibitive costs of a “good” education coming under the spotlight.
The cost of education has also been cited by many young Chinese as a reason they are unwilling to have more children, even after China formally allowed all couples to have three children this year in an effort to stave off population decline.
Bloomberg News contributed to this story — AFP